NYSE Euronext (NYSE:NYX) is set to unveil the Retail Liquidity Program, an innovative platform that will allow trading firms to participate in retail trades outside the traditional marketplace.  Although it offers price improvements to retail investors, the program has been heavily criticized across the industry as the trades will not be visible to the public.  After months of deliberation, the U.S. Securities and Exchange Commission (SEC) has approved the program rejecting concerns from industry peers that it might change the fundamental structure of the markets.
Public confidence in capital markets has been eroding since the economic crisis of 2008, brokerage firm Rosenblatt Securities revealed that the portion of stock trades outside the traditional exchanges has increased from 15% to 35% during the time period. NYSE will look to attract a portion of this so called dark pool trading which is more lucrative and opaque than normal trades through its new retail liquidity program. The program will cover retail equities trading for NYSE, NYSE MKT listed and NASDAQ UTP-traded equity securities and will classify participants as Retail Liquidity Providers (RLPs), who would provide price improvement in exchange for economic benefits and Retail Member Organizations (RMOs), who can submit retail orders to the exchange.
NYSE’s closest competitor, Nasdaq OMX (NASDAQ:NDAQ), which has come under heavy criticism after mishandling the Facebook (NASDAQ:FB) IPO has also indicated interest in setting up a similar initiative. We forecast an increase in NYSE’s trade volumes through the coming years, fueled by the exchange’s initiatives. (See NYSE Heads To $34, Expands Electronic Bond Platform And Oversease)
We, along with the SEC will monitor the program and its effects on the markets during its pilot phase. Our price estimate for NYSE Euronext’s stock is $34, approximately 33% above the current market price. You can gauge the effect of a change in our forecast, by modifying the interactive charts above.Notes:
- NYSE Euronext to Launch Retail Liquidity Program, News Release, July 5th, 2012 [↩]
- Regulators approve NYSE’s plan for its own ‘dark pool’, Business Standard, July 9th, 2012 [↩]